ECA Watch Newsletter

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Index for January 2016

Volume 15, Issue 1

(International Rivers, Berkeley, 3 December 2015) At the Paris COP, 500 NGOs from 85 countries published a manifesto on 10 Reasons Why Climate Initiatives Should Not Include Large Hydropower Projects. The manifesto explicitly refers to the inclusion of large hydro projects in the special terms of the OECD ECAs for renewable energy technologies.

(TFX News, London, 11 January 2016) Localisation requirements in emerging-markets projects are meant to be a way of giving back; an attempt at ensuring a lasting beneficial legacy for the local population of the respective country. But is this ostensibly benign endeavour offering a perfect guise for corruption and bribery? From a financing perspective, the question is: what controls and/or processes could be put in place by the agencies [DFIs], the ECAs and the OECD to encourage more localisation and, at the same time, ensure the best local counterparties are engaged to perform those local works [rather than companies connected to local politicians or offer kickbacks or pay bribes]?

(Global Trade Review, London, 21 January 2016) Petrobras has received a US$500mn buyer’s credit facility from JP Morgan for the purchase of equipment manufactured by a UK subsidiary of GE Oil & Gas. Subsea and surface oil gas pipelines will be exported by Newcastle-based Wellstream International, and as such the deal is 100% covered by UK Export Finance (UKEF)... The deal comes in the midst of turbulent times for Petrobras, which is battling a major corruption case in Brazil, and whose credit-worthiness has been downgraded two levels to BB by Standards & Poor’s. UKEF tells GTR that the anti-bribery due diligence it carried out ahead of the deal indicated that “Petrobras has taken significant steps to reform its senior managerial and compliance structures, and that individuals found to have been involved in bribery have been replaced”, making it possible to provide support to the oil giant. JP Morgan would not comment on how the corruption scandal affected the deal.

(TXF News, 21 January 2016) In the century of their existence, export credit agencies (ECAs) have rarely been subjected to the level of public scrutiny they find themselves under today... Their advocates claim export credits allow impoverished importers to purchase goods that might otherwise be unaffordable, thereby promoting private sector development in poorer countries while forming an important part of the exporting nation’s trade policy. ECAs’ opponents have accused them of soaking up aid money for developing countries for the primary benefit of rich nations’ industry, supporting investments in projects with detrimental human and environmental impacts, and serving as a thinly-veiled guise for export subsidies and corporate welfare... At the end of June last year, [US] Exim adversaries saw their lobbying efforts come to fruition: the bank shut its doors to any new business and went into maintenance mode. But after five lengthy months of bi-partisan counter-lobbying, the bank experienced a Lazarus-like resurrection at the beginning of December – having its charter reauthorised until the end of 2019. Unfortunately for US Ex-Im though, that was not all she wrote. Although reauthorised, the bank is prohibited from approving transactions of over $10 million until a quorum is achieved at board level – there are currently three vacant spaces on the five-strong board. And Senate Banking Committee chairman Richard Shelby, a staunch Exim opponent, has made it clear he’s “in no hurry” to hold a vote, potentially delaying the process for months.

(Export Import Bank, Washington, 14 January 2016) The Export-Import Bank of the United States (EXIM Bank) released its Fiscal Year 2015 Annual Report highlighting its support of more than $17 billion in U.S. exports and an estimated 109,000 U.S. jobs. The Bank also announced it has transferred $431.6 million in deficit-reducing receipts to the U.S. Treasury's General Fund for fiscal year 2015. [The press release made no mention of the battle that raged through 2015 between corporations receiving EXIM support and conservative politicians who closed EXIM down for a period in opposition to what they called corporate welfare.]

(24/7 Wall Street, NewYork, 22 January 2016) Boeing Co. on Friday morning released its 2016 aircraft finance market outlook. The headline number is $127 billion, the forecast amount for new commercial deliveries in 2016, up from $124 billion in 2015. The company’s Boeing Capital Corporation also forecasts deliveries totaling $130 billion in 2017, $142 billion in 2018 and $161 billion in 2019. How all these airplanes will be paid for is the subject of Friday’s release. Boeing expects bank debt and capital markets to fund about 63% of all 2016 deliveries, with cash accounting for another 24% of funding and export credit to cover another 11%. Aircraft leasing companies are expected to use bank debt and capital market financing to acquire about 40% of all deliveries again next year.

(New York Times, New York, 26 January 2016) Aircraft offer a stark example of Iran’s need for foreign goods. The sanctions left Iran with one of the world’s oldest and most accident-prone fleets. Iran Air operates exclusively Western-built jets, consisting of around 40 planes with an average age of 25 years, including several Boeing 747s as well as models no longer in production, like the Airbus A300 and the Fokker 100. The orders, which are likely to be partly financed with loans from European export-credit agencies, could be announced as early as this week in Paris during a visit by President Rouhani, Mr. Akhoondi said.

(Global Trade Review, London, 25 January 2016) Italian utility group Enel has secured a US$1bn line of credit from the Bank of China, backed by Sinosure, the Chinese state export credit insurer. The five-year facility is aimed at financing projects involving Chinese companies around the world and has an option to be extended upon completion... In the last few years, [Enel] has inked numerous agreements in an effort to enlarge its Chinese footprint. In 2014, it signed agreements with the Bank of China, China National Nuclear and the State Grid Corporation of China... The latest transaction is sure to result in Enel’s participation in China’s booming green and renewable energy and cleantech sectors... Meanwhile, in 2015, Sinosure signed a reinsurance agreement with Sace, the Italian export credit agency, aimed at facilitating projects involving companies from both countries.

(TFX News, London, 25 January 2016) India’s election in 2014 of business-friendly Prime Minister Narendra Modi, along with his promises of a capex boom, triggered a rush of optimism that ECA finance would finally take off. The rout in global commodity prices that started less than two months later sent those hopes into tailspin, although India’s potential as a vibrant ECA market could yet be fulfilled once oil prices recover. While smaller ECA transactions take place “here and there” in India, the country is not, considering its size, a big player in ECA finance, says Manuel Probst, director of export finance at German industrial services provider Ferrostaal.

(Above Ground, Ottawa, 11 January 2016) Thomas L. Friedman's "The World Is Flat: A Brief History of the Twenty-First Century" suggests that a level playing field has emerged in the world of global commerce, affording competitors equal opportunity. But this analysis ignores government intrusion in the form of massive loans to favoured players and projects. Case in point: last November’s immense mine spill in the state of Minas Gerais, Brazil's worst environmental disaster, which Brazilian President Dilma Rousseff compared to the Deepwater Horizon catastrophe in the Gulf of Mexico. Fifty million tons of toxic waste flooded the Doce River, leaving a wake of destruction for hundreds of kilometres. At least 19 are dead and thousands have lost their homes and livelihoods. Indigenous Krenak people demanding safe drinking water have blocked the local railway. The Brazilian government is suing the mine’s joint venture owners, which includes Brazilian multinational Vale [formerly INCO], for over $5 billion USD. There is a direct Canadian connection to this venture. Export Development Canada, a Crown corporation, provided Vale with hundreds of millions of dollars in financing for its global operations, most recently in 2014.